With 2015 now in the books, it’s time to look back on the year that was.
It was another year of surprises: after the gurus continued to predict higher interest rates, the Bank of Canada shocked almost everyone by lowering the overnight rate twice in 2015: first in January, and then again in July. That spelled another year for higher-than-expected bond returns. And while it was a disappointing year for equities in almost all regions, the plummeting Canadian dollar caused the value of foreign equities to soar.
All in all, a diversified portfolio did quite well in the “year when nothing worked.” Yet another reminder of why it is so important to hold all of the major asset classes all the time and ignore the noise. Let’s look at the details.
The building blocks
Here are the returns of the individual TD e-Series funds and Vanguard ETFs that are the building blocks for Options 2 and 3 of my model portfolios:
TD Canadian Bond Index – e (TDB909) | 3.07% |
TD Canadian Index – e (TDB900) | -8.51% |
TD US Index – e (TDB902) | 20.74% |
TD International Index – e (TDB911)
Source: TD Canada Trust |
18.90% |
Vanguard Canadian Aggregate Bond (VAB) | 3.48% |
Vanguard FTSE Canada All Cap (VCN) | -8.74% |
Vanguard FTSE Global All Cap ex Canada (VXC)
Source: Vanguard Canada |
17.04% |
Now let’s put these blocks together and see how the model portfolios performed. At the beginning of 2015, I expanded the TD e-Series and ETF models to include five different asset mixes, ranging from Conservative (30% stocks, 70% bonds) to Aggressive (90% stocks). Here are the returns for each version:
TD e-Series funds
Conservative | Cautious | Balanced | Assertive | Aggressive |
30% equities | 45% equities | 60% equities | 75% equities | 90% equities |
5.26% | 6.36% | 7.45% | 8.55% | 9.65% |
Vanguard ETFs
Conservative | Cautious | Balanced | Assertive | Aggressive |
30% equities | 45% equities | 60% equities | 75% equities | 90% equities |
4.97% | 5.72% | 6.46% | 7.21% | 7.95% |
Why the differences?
The first question that leaps out from these numbers is why the TD e-Series portfolios outperformed the ETFs across the board. After all, the e-Series funds carry management fees that are roughly 0.30% higher. There are two main reasons:
Different Canadian equity indexes. Vanguard’s VCN and its TD e-Series counterpart both track the broad Canadian market, hold roughly the same number of stocks, and use a traditional cap-weighted strategy. However, their index benchmarks are different: Vanguard’s ETF tracks the FTSE Canada All Cap Index, while the e-Series fund tracks the S&P/TSX Capped Composite.
The indexes have slightly different rules governing which companies are included and the weight assigned to each. As a result, from year to year their relative performance will vary slightly and randomly. This year the S&P index won out. Over the long term, these differences have tended to even out.
The ETF portfolios include emerging markets. The ETF portfolios get their foreign equity exposure from Vanguard’s VXC, which holds roughly 10% in emerging markets. This asset class was essentially flat in 2015: returns were a little above or below 0%, depending which index you tracked. The TD International Index Fund includes only developed markets, which performed much better on the year.
Again, this is simply a random result that worked in favour of the TD funds this year. Over the long term, adding emerging markets to a diversified portfolio should be expected to boost its expected return, though it may also increase volatility.
the “year when nothing worked.”
This is a good one CCP! I also averaged a 8% in 2015 with my 100% stock allocation (30%ZCN, 25%VTI, 20%VBR and 25%VXUS) and I am ready for many years where nothing work like this!
I dont hold bonds yet since we decided to crush our mortgage instead. Principal is now down to 50k$ (15% of our house market value and 5% of our NW). I will introduce bonds (probably VSB) when we have no more debt and NW will hit the 1M$ mark.
Thank you for making investing simpler and cheaper!
Hi CCP,
Wishing you a great 2016 Year and a also a big THANK YOU for all the information you provide on this site.
I have turned into a Couch potato Investor about 2.5 years ago, and your site has helped tremendously.
It also helps a lot when I feel a bit more jittery (like the last 2 weeks…) – if one was to only listen to the usual “finance media” for information and updates, one would think that the world is nearing financial apocalypse!
CecileB
Hi, I would like to know your thoughts on the new low cost ETF that TD will release this year.
Thanks to everyone for the kind words. As this blog enters its seventh year, I am encouraged whenever I hear from people who say it has been helpful in their investing journey.
@Francis: Impossible to say much about the TD ETFs until we know the details about the fees charged. But from the sounds of it, these appear to be plain-vanilla products tracking established indexes, which is perfectly fine, though not likely to make a dent in an already crowded market. It’s pretty much impossible to compete on price now.
The reason we did pretty well in Canada this year was mostly due to the falling loonie, so taking a poke at the the Bloomberg article (US publication) isn’t quite fair. US investors didn’t have the same currency advantage as we Canadians, so the year wouldn’t have looked so good for american “couch potato” investors.
Hi, I’m not sure if I did something wrong but I started investing through Questrade since Feb of 2015 and followed the CCP strategy Assertive strategy (25% bonds, 75% Equities) however it shows that for the fully year of 2015 I only had 1.9% gain. The highest being at July and October being 3.7% and 3.5% respectively. Is Questrade showing me my gains incorrectly?
Hi Dan,
I’ve been following CCP and it’s progress for a while now and have been intrigued by the ‘just showing up’ aspect of it’s nature which was worked fantastically for myself and others alike…up to this point. I’m intrigued as to what your recommendations are, going forward into 2016 where it seems likely the giant equity gains we’ve seen over the past 8 years, are likely to be very much muted now the QE bull is truly dead. Are you thinking to operate much the same and just accept the lower % gains or that the fundamentals of indexing will need to change to try and find yield?
Genuinely intrigued as to your thinking about this, especially given one of your articles I can recall reading in moneysense quite some time ago commenting on this situation.
Very best wishes in this new year!
James
It’s been very helpful in the early stages of my investing journey. Thank you for all the useful material. I look forward to more posts. Have a great year!
I want to second CecileB’s comment.
As a newer investor, this website has been an exceptional source of high quality, well-written information.
Thank you Dan (and those contributing to the comments) for your contributions over the years. These will help investors like me and others for many years.
@Jon: Performance reporting is not straightforward: you need to pay careful attention to start and end dates as well as cash flows in and out of the portfolio. My guess is that Questrade’s reporting is accurate, but you may be comparing apples and oranges.
@James S: To be as brief as possible, if returns going forward are lower (and they may well be), what else can we do but adapt by saving more, spending less, working longer or some combination of the three. We cannot “find yield” any more than we can make it rain. This may help:
https://canadiancouchpotato.com/2013/01/21/does-a-6040-portfolio-still-make-sense/
@Ben and Erik: Thanks for the kind comments!
For those of us who added or withdraw money into our portfolio during the year, our rate of return should not be directly compared with what Dan posted here, because we need to do some adjustment. Dan’s research white paper on how to calculate the money-weighted or time-weighted rate of return discussed the details on the calculation. Thank you so much, Dan, for your fantastic and generous work on this website and making freely available for your research papers.
Happy new year CCP – agree that the past year was a good example of value of diversification. My US and International portions saved my butt!
I’m 55% equities with a few other ETF’s and I ended the year with 6.2% gain (Modified Dietz method) which I’m happy about when compared to my friends who try to chase the market or dividends. Actually excited about the gloom and doom the first week of 2016, looking at what I can buy (or add to position) on sale.
Wishing everyone a good and prosperous 2016!
Thanks so much! My portfolio more closely represents the 5-fund approach, now on Justin Bender’s website; but I see he has updated those as well (which closely aligns with the 3-fund Vanguard ETF portfolio you have here now, except for the management fees :) .
@CCP Great advice which I already live by :) If I can echo @Jim in thanking you again for what has been an eye opening learning journey which has both peaked my curiosity and self-discipline in personal finance. Following from that, when can we expect to see CCP’s 2016 model portfolios? Thanks again mr. potato
In terms of future content that hasn’t been adequately covered but would appear relevant, I would like to read more about the comparitively new robo-advisor services – Wealthsimple, WealthBar, Nest Wealth, Smart Money – and how they compare to other options.
In particular, they appear to be direct competition for the Tangerine funds in your model portfolio and it would be great to have your assessment of how they all stack up against each other.
Every year at this time I write the same comment: “And the Mawer Balanced Fund beat them all”.
@Thomas: I suppose we should be grateful that your smug comment comes only once a year.
The Mawer Balanced Fund is an excellent, low-cost and prudently managed balanced fund. If your long-term asset target is 60/40 and you are not concerned about asset location I don’t think anyone would criticize the decision to own it simply because it’s not an index fund.
“@Thomas: I suppose we should be grateful that your smug comment comes only once a year.”
R.O.T.F.L.M.A.O.!! Thanks Dan, that one made my day.
Yes, I do own some Mawer balanced, but would not hold more than about 10% in any one stock or active MF, no matter how good it looks or has performed.
call me a dope ( won’t be the first time) but I am trying to reverse engineer some of these returns.
VXC for instance, I get an increase of 3.70. (30.44 end of Dec, 26.74 Jan 2 2015) which is a 13.84% increase.
so where does the 17.04% increase come from (the vanguard site seems to show capital Return 14.85% + Income Return 2.19% = 17.04%)
so, what am I missing here?
also have to chime in here, that the relatively good looking results of the CCP portfolio are much a function of good timing. If you read the CCP and encouraged your partner to shift her boring but safe money market account in to an Assertive CCP Vanguard portfolio in March/April 2015, you got killed (and you have a very unhappy partner who doesn’t believe “you’ll do better in the market, trust me”.
VCN fortuitously shot up after Jan 2, 2015 to 31.22 in April and then collapsed to it’s end of year 26.14 (and now 24.73, – 20%)
I am struggling to explain how that 20% drop is “smart” investing.
So, real question is: how does one get the nervous nellies to keep the faith and not bail out now?
Love the site. When will 2016 model portfolios be published?
@peter stock: The total return on an ETF is measured as the price difference from Dec 31, 2014, to Dec 31, 2015, plus the dividend/interest income, which is assumed to be reinvested immediately after being distributed. To address your second question, the Couch Potato portfolios are all long-term strategies. Measuring any investment strategy over a random eight-month period is meaningless. “Nervous nellies” should not use the Assertive portfolios at all if they cannot handle volatility. One of the more conservative portfolios would be more appropriate, but even they need a long-term commitment.
@Lisa: I have no plans to change the model portfolios in 2016. I will update the historical returns as soon as I have an opportunity: it is quite time consuming.
Thanks for a thoughtful explained 2015
Look forward to more insight in 2016
Hi CCP, Thanks for all your efforts and educational information. I hope you can help with this newbie question.
If I can get a loan at 4% rate and I only need to pay interest every month, how risky it is to use the loan to build one of the model portfolios? Let’s say for the conservative Vanguard ETF, the average return would be around 7%, which would be a 3% (7-4) gain. My horizon is 25 years and I am very comfortable to pay the loan interest if the ETF gain is negative for a short term.
As I understand, the key factor here is the borrowing cost which could increase if the prime rate increases. I would have to pay more each year for the loan. And even worse, the bond market would go towards the opposite direction causing the portfolio return lower than expected. Could the bond return even lower than the borrowing cost in a long term?
Thank for your consideration.
@Herbert: In my opinion, borrowing to invest is too risky for the vast majority of people, especially those who describe themselves as novices. You should have many years of experience in the markets (including a devastating bear market) before you consider it.
Even then, your expectations are not realistic: no conservative portfolio can be expected to deliver an average return of 7%: that might be the expected return for a portfolio of 100% equities. Bond yields today are much lower than the 4% interest you’d be paying. A balanced portfolio might have an expected return somewhere between 4% and 6%, but even that would come with many periods of loss. Overcoming a 4% interest rate on top of the usual investing fees would be close to impossible without taking on a lot of risk, which of course would be compounded by the leverage.
Hope my advice is clear: don’t do it.
Happy new year Dan. I just wanted to say thank you for continued effort you put into your website and articles. You have helped me tremendously, so I just wanted to wish you all the best for 2016.
@Herbert: If you are not actually able to borrow money below 3%, I you do not invest 100% equities, if you never saw your investments drop 30-50%, if your saving rate is less than 20%, etc.
Just follow the CCP advice: don’t do it.
CCP, Thanks for your explanation. LB, thanks for your inputs
“R.O.T.F.L.M.A.O.!!” I’m chuckling at the exchange but need a translation.
Also, can’t say it load enough: how much I appreciate your insights and patience.
Thanks CCP! I’ve been getting my hands in investing into mutual funds and selected stocks with varying degrees of success.
Now that I am getting a little bit more serious and looking in getting a proper portfolio allocated, you have become an excellent resource in getting started for a novice like myself.
A few questions:
1) Is it worthwhile to go from RBC managed Index funds that you recommend to TD E-Series funds, especially if I’m looking to transfer a ‘relatively’ small amount of around $15,000?
2) If I stuck with RBC, would you still recommend NBC839 over RBF559 for International Index?
Given how the start of 2016, how much should I be paying attention to the bear-ish news that have been coming out? I see this as an opportunity to hold and perhaps buy more as the prices are low, or should I not really look at it from that perspective?
Thanks!
@Thomas
The Mawer Equity funds have had a terrific run in the past 5-10 years. They have 6 equity funds (international, US, Global, Global small, Canadian, Canadian Small). All but the US equity fund have outperformed their respective benchmarks and many by a significant margin. http://www.mawer.com/our-funds/performance/
Part of their outperformance can be explained by tilts to value, momentum, and small cap stocks as per this post from Justin Bender http://www.canadianportfoliomanagerblog.com/active-funds-exposed/
In addition part of their relative success to other active funds can be explained by:
1) relatively low MERs because they don’t have trailer fees (save 1%),
2) relatively low turnovers (typically less than 15%) reducing TER and big ask spread costs
3) they are privately owned allowing them to focus on long term performance rather than trying to sell whatever is hot as many privately owned fund companies do
HOWEVER,
(1) The recent track record of Mawer having 5/6 or 83% of it’s equity funds outperforming is totally unprecedented. I have looked, in both Canada and in the US. I have found nothing even close. The best performing Group of active funds delivered by one company is Vanguard who managed to beat the benchmarks of in 53% of their funds. The majority of fund companies are closer to only having 20% of their funds outperforming their benchmarks.
(2) There are endless studies that have shown that past performance has almost no predictive power of future performance. To me the most notable source is from studies Mornignstar because they make their living trying to predict which funds will outperform in the future so if anything they would be biased to say that their star ratings are working. But they don’t. Morningstar research has repeatedly shown that low costs is a much better predictor to future outperformance than previous period outperformance.
(3) Past Mawer performance is not as rosy. For example the Mawer Canadian Equity Fund significantly underperformed the index from it’s inception 1991 through to around 2000. In fact it wasn’t until 2011 when this fund managed to beat the index since inception. Go ahead and look at Morningstar and hit maximum on the data chart. http://quote.morningstar.ca/QuickTakes/fund/f_ca.aspx?t=F0CAN05MUH®ion=CAN&culture=en-CA
(4) As mutual funds take on more assets it is hard for them to maintain keep their same strategy. All Mawer equity funds significantly overweight small cap stocks. As they take on more and more assets the costs of bid ask spreads of these small cap stocks will continue to grow making it harder to outperform. Due the investors chasing the winners, the assets under management of the Mawer Global Equity (A series) fund has ballooned from ~200M in 2010 to ~1.3B today.
I too have owned Mawer funds and have done well with them. But I have replaced them all with index funds because I recognize that although Mawer has recently done very well, and will likely continue to do better than most active funds, they will still likely underperform the index in the long run.
As with all the other useful education packed into this juicy blog, I really appreciate the feedback given by your yearly annual return calculations on the Couch Potato Portfolios; but I think I have only recently acquired an appropriate perspective as to how to view this information and what to do with it. As the years tick by, I realise how little I first knew at an emotional level, even after initially grasping the intellectual kernel of the Couch Potato Investment philosophy. Consequently, the internal message I get every year on reading the returns analysis changes (in a good way, I hope) as I get more emotionally attuned to the long term horizon of my original plan that I claimed to adhere to. Paper losses that may have bothered me last year are now seen in context. I talk a good talk now, but I really wonder if I my intellectual resolve would have buckled last year if as a novice I saw huge losses on my first year out.
I am sure my experience as a novice investor is very common. As you have quite properly been required to chide some commenters in the past for checking their portfolios as frequently as weekly, perhaps some overall advice as to how to view the annual returns, winners or losers, might be helpful for the novices out there.
@Shaun
I only compared the Mawer Balanced Fund to the traditional 60/40 Couch Potato portfolio. I did not advocate on behalf of all Mawer Funds.
I’ve been reading this blog for three years and have done hundreds of hours of research to try to find the one mutual fund that I would like to own, instead of running an Index portfolio. I required a fund that was perfectly diversified with reasonable asset allocation and asset location. The fund also had to have at least a 15 year track record of beating the indexes. It led me to Mawer Balanced. Yes, it may not always beat the indexes, but I believe that it has a very good chance of beating them over the next 15 years. The bottom line is, this is a professional stock pickers market. I put my faith in the Mawer team to pick my stocks for me and to decide exactly what the asset allocation and asset locations should be via the fund. They have, quite frankly, proven themselves over so many years that I simply TRUST them. Having said this, I have nothing against people who Index. I respect that and in most cases with most people, Indexing is probably the way to go. But it is not for me. I want a trusted team to decide what to invest in and when to invest in it. That’s Mawer and for me, Mawer Balanced.
@Shaun
Interesting reading.
Mawer has done very well as a investment firm. As you mention, I do wonder if asset bloat will be an issue with their investment philosophy in the future.
https://www.steadyhand.com/education/library/2009/03/12/feeling_bloated.pdf
As you likely know, they did close their New Canada fund to new investors, so it seems they have do place value on investors, and not just assets under management.
As a relative novice, I will go forward with investing being mostly about process and not as much as about products, as Dan would say, so I will continue to focus on saving, discipline, and keeping costs low.
Hey Dan , you’r the man!
happy new year and thank you for helping canada invest better!
What is the general opinion on not allocating as much to the Canadian index fund as the US and international ones? Does it make sense to not have as much in Canadian index as the Canadian gdp is only 3 or 4% of the worlds?
Hi CCP,
Just getting started with index investing and deciding on my asset mix and have one question. For various reasons, I have a permanent life insurance policy with a cash value attached to it. For any target mix, should I reduce my bond allocation to account for this fixed asset?
Thanks!
@Ninian
Dan has written about this (and many other investing topics) before.
https://canadiancouchpotato.com/2012/05/22/ask-the-spud-does-home-bias-ever-make-sense/
Bottom line: Vanguard research suggests 20-40% overweight to Canadian equities historically has had the lowest volatility. Dan’s portfolio’s reflect this at 33% Canadian equity. Don’t guess which market will outperform or under perform in the future.
https://www.vanguardcanada.ca/advisors/articles/research-commentary/investing/home-bias-canadian-investor.htm?lang=en
https://www.vanguardcanada.ca/documents/global-equities-tlor.pdf
.
@Murray: I don’t think it’s helpful to treat a life insurance product as an asset class in an investment portfolio. I would ignore it in your asset allocation decision.
@Erik: Thnaks for providing those links!
Hi CCP,
I saw in the comments that you said your model portfolios won’t be changing for 2016. That said, would it be possible to recommend a bond fund alternative for those of us with portfolios in non-registered accounts?
Hi Dan,
I’m a big fan of your methodology and I’m (finally) looking at putting it into practice by moving a sizeable portfolio of registered and non-registered accounts from a full-services broker to an online brokerage.
I’ve searched on this site and haven’t found a rule of thumb for applying the Model Portfolio 3 (ie Vanguard) across the various accounts (RRSPs, TFSAs, etc). I could go the easy route and just invest in all three funds in each of the accounts, but I’m assuming there’s a more sophisticated approach?
Thanks for all you do
@William
Dan has recommended GICs instead of bond ETFs in taxable accounts.
https://canadiancouchpotato.com/2015/03/27/ask-the-spud-gics-vs-bond-funds/
He has written about HBB, which uses a swap structure to avoid distributions (and the tax payable by the investor) as an option. You would be taxed later on capital gains.
https://canadiancouchpotato.com/2014/05/08/a-tax-friendly-bond-etf-on-the-horizon/
http://quote.morningstar.ca/QuickTakes/ETF/etf_taxanalysis.aspx?t=HBB®ion=CAN&culture=en-CA
@AB
Dan has spoken asset allocation across accounts a few times. This article has a nice chart illustrating an approach with links to other articles. Maximize taxable accounts completely.
https://canadiancouchpotato.com/2014/08/13/managing-multiple-family-accounts/
VAB: RRSP (TFSA if overflow). Avoid in taxable accounts.
VCN: Because of dividend tax credit, this should be your main holding in a taxable account, if such an account is needed.
Otherwise, favor TFSA over RRSP because of higher expected tax-free growth of VCN compared to VAB.
VXC: TFSA to maximize long term growth as above. Rest in RRSP if taxable investor. If both full, then add some to taxable.
Good luck!
@Glen: I mean no disrespect here, but after all, this is a Couch Potato blog, and one would like the freedom to explore intellectual arguments, if not free of biases, at least to identify and acknowledge those biases.
” They have, quite frankly, proven themselves over so many years that I simply TRUST them.”
Trust is a very powerful word, but at the same time it is an acknowledgement of giving up control — in this case, of controlling the active choices which will be made on your behalf and which you hope will affect the future, again, you hope in a positive way.
You have not fully fleshed out the full reason for your trust, which apparently has started out as most trust does, in blind faith, but is buttressed by the fact that Mawer has done well in the past 15 years. You must be aware of the academic reasoning behind passive index investing, or more accurately, the lack of convincing evidence for the merits of active management. There is, over the vast swath of active managers on record, no evidence of any magical ability to discern the future and to beat the market. Of managers of any longevity who are in the bottom percentiles right now, if you go back far enough, you will find they often occupied the higher percentiles, perhaps for decades, previously. Why are you so convinced that Mawer will the one future exception? For this is what your bet is on.
I understand that within the category of active management funds Mawer stands out as among the most conservative and reasonable, and so certainly would be a good choice of active manager the least removed from the principles that have been laid out in these pages.
But that is beside the point, which is that in spite of thinking that for most people, in most cases indexing is the way to go, you have stated that indexing is not for you.
Again with the utmost of respect, for certainly no one has any right to compel you to do anything other than
what is right for you, I ask what is the logic for your decision to put your trust in Mawer (or any other active manager, for that matter) — is it purely for the relief of not having to personally rely on a theoretical and mathematical framework that is logically unassailable but seems to bear little resemblance to one’s familiar experiences of real life? Sorry, if I didn’t ask the question, others, including yourself, are likely to.
Glen sounds like a Mawer fund informercial, frankly.
@Oldie
For me, it is simple: I am not interested in investment vehicles that are truly risky (high growth mutual funds that beat the Index for a year or two, hedge funds, or individual stocks). Indexing is 1/4 of my overall portfolio, so I am a believer in Indexing. I simply want to have a 50/50 chance of part of my portfolio beating the Index by 1% or 2%. Mawer Balanced has proven to do this over many, many years. For me, that is a proper risk/reward. Having said this, let me be perfectly clear: If I do NOT beat the Index with Mawer Balanced over the next 15 years, I am 100% comfortable with that. If it does not beat the Index, I suspect that it will be by that same 1% or 2%. I am fine with that. Finally, with the current market maybe turning bear, I am more comfortable with someone like the Mawer team making any final adjustments for me. In this environment, I could see myself trying to time the market by making changes in my asset allocation. So, for me, it is better that I am with Mawer as Mawer Balanced has the 60/40 split that is perfect for me at my age. So, for now, Mawer Balanced is just the perfect fit for me on all levels. When my circumstances change, I will make the appropriate changes at that time. Good Luck to all.
I want to max out my TFSAs (deposit an additional 20K) as well as open a new self directed RSP account and deposit another 30-40K.
I know I cannot try to time the markets, and I have told myself over and over to just invest and forget it, but am I crazy to do this at the moment? I don’t know enough about the markets to know if there are any key dates in the next week or month that could affect anything?
I’ve been using TD E-Series index funds, and my breakdown is 25% in Canada/US/International indexes and 25% in Canadian bonds. I’ve also been reading about maybe less home bias but have also read articles (some from here) countering that argument. Is 25% in Canadian index a bad move if I am sinking a large chunk of money in my portfolio right now?
jim_kay: Search in the blog and you’ll find relevant information about lump-sum investing versus spreading things out. They both have their pros and cons.
Personally, I think that this would be a bad time to re-assess your asset allocation or change your overall approach, but if you need to add money and move things between accounts, it would be a perfect opportunity to rebalance your portfolio.
Thanks Paul G, I am just going to suck it up and stick to my 25% of each index. Can’t let all the noise deter the longer term plan.
@ Thomas
You say that you only looked at the Mawer Balanced fund and did not “advocate on behalf of all Mawer funds.”
Well, have a look what the Mawer Balanced fund has in it: http://www.mawer.com/our-funds/fund-profiles/balanced-fund/
You will see it is made up of all the equity funds I was referring to plus their bond funds which like all actively managed bond funds have virtually 0% chance to outperform their respective indices. There is so little room for skill in actively managed bond funds that about 99% underperform the index and they all underperform almost exactly what they cost. This is true with the Mawer bond funds that have a 0.73% & MER and have underperformed by 0.7% over the past 10 years. This guaranteed underperformance of bond the bond portion as well as a high cash ratio in cash will act as further drags on the equity returns making it harder to continue to outperform.
@ Glen
If you think a 15 year track record of outperformance is long enough to provide a high degree of confidence that the outperformance will continue consider this:
Bill Miller has been touted as one of the best money managers of all time. He was at the head of Legg Mason Capital Management Value Trust when is beat the S&P500 after fees for a record breaking 15 consecutive years from 1991 through 2005. And he did so by a pretty nice margin. Investors noticed the performance and billions rolled in as they though that surely this streak must provide some predictive power on continued outperformance.
How has the fund done since? It underperformed the S&P500 5 of the 6 following years. The 10 yr total annualized return for the fund is 0.86% compared to 7.31% for the S&P500 for the same period. This puts it at the bottom of the bottom quartile in performance compared to its peers. Bill Miller threw in the towel in 2011. The fund now has a 2 star rating on Morningstar. Millers explanation for his outperformance like this, “As for the so-called streak, that’s an accident of the calendar. If the year ended on different months it wouldn’t be there and at some point the mathematics will hit us. We’ve been lucky. Well, maybe it’s not 100% luck—maybe 95% luck.” https://en.wikipedia.org/wiki/Bill_Miller_(finance)
https://individualinvestor.myleggmason.com/portal/server.pt?open=514&objID=67967&cached=true&mode=2&userID=355661&mktcd=LMVT
If you think that Mawer is truly different and could not possibly underperform because of its recent run. Remember the case of Bill Miller and countless other funds that have performed very well in one period and very poorly in the next. Then remember this timeless quote: “The four most expensive words in the English language are ‘This Time it’s different.’” John Templeton